How To Calculate Your Marketing Budget
Discover how to determine your marketing budget and the best practices to follow to ensure your business sees a good return on investment.
Working out what your marketing budget should be can feel like a minefield.
Whether you have a rough idea or no clue whatsoever, the same techniques can be applied to give you a good idea of what your costs should be.
Only once you’ve determined what you have to spend can you work out how to spend it.
So, let’s take a look at how you can calculate what your budget is.
Work Out Your Goals
What are you trying to achieve? Exposure? Leads? World domination?
Whatever your aim, you need to be clear what your goals are. Only then can you determine how to successfully work towards them.
Of course, you should focus your spend on the highest priority. However, it’s important to understand that a marketing budget is all about finding the right balance.
You want as many people as possible to know who you are and what you’re offering, but you need to have money left to be able to provide the service once they’re interested.
Ultimately, it’s all about striking the balance between people knowing who you are and having the funds to keep the other aspects of the business running smoothly.
The Basic Formulas
If you look online, you will find lots of formulas that are designed to help you determine your marketing budget.
Let’s have a quick look at what they are:
A general rule of thumb is that if your business is 1-5 years old, then allocate between 12-20% of your gross revenue on marketing. If you’ve been up and running for longer – 5+ years – then lower it to 6-12%.
The primary reasoning behind these figures is that newer companies need to spend more on marketing as they have to get their name out there.
Of course, these are basic guidelines. Factors such as the cost of your overheads will determine what your business can afford. So, before you rush off to calculate your budget, read on to see all the factors that affect what a sensible budget will be.
Everyone wants a good return on their investment.
But when thinking about what you want to get back from your marketing, you should look past the ROI figures. Whilst sales and acquiring customers may be your top priority, value comes in many forms.
One of these is social media.
Things such as page and blog views, followers, post engagements and interactions shouldn’t be overlooked. By looking at the bigger picture, you should see that these communications are highly valuable too.
These days, engagement goes a lot further than brand awareness.
It’s a more organic way of building relationships with customers and sees more success as it feels meaningful. People also feel less like they’re being ‘sold to’ through non-paid channels and this is priceless.
So, whilst they may not be making you money now, a large online following will likely bring a wealth of customers in the future. Therefore, investing in your social media channels is about more than just money.
Your Marketing Methods
If you’re struggling to determine the areas where you would see the most profitability, have a look at where your marketing budget is already working well.
A great way of finding out where you’ll see the best ROI is to ask where the customers you already have found you. With this information, you’ll be able to make better-informed decisions about what is and isn’t working.
Remember to track every visitor to your website and be sure to understand exactly where they’ve come from to help yourself in the future.
You can also get a rough idea of what your initial budget should be by looking at your competitors.
This will not only provide you with a good idea of what is average for your industry but will tell you how far your budget will get you. This is important as if they have a high share of the market, a small budget isn’t going to touch the sides. Similarly, if there’s little competition you won’t have to spend a fortune to get ahead.
Your competitors can also be useful for deciding which marketing methods you should opt for.
Is there a benefit in investing in a channel that they’re neglecting? Or is it being boycotted for a good reason?
Ultimately, is there any profit in it? Look for new opportunities that offer cheaper ways to beat the competition.
These are all questions you should ask yourself to determine the best way to reach your potential customers. Once you’ve sussed what the market is like you can use this information to help shape your budget.
The Cost Of New Customers
Take a look at how much it costs you to acquire a new customer.
Divide the total amount you currently spend on marketing by the number of leads generated – how much is it? A lot? A little? This number will give you an indication of your current success.
If you do this for every type of marketing you do, you can easily see how each is performing and make decisions based on the results.
This will also help you decide the best channels to focus on moving forward.
There are different tools out there which can help you evaluate your performance. For example, we offer a free, 60-second health check to evaluate how your Google Ads are performing.
Tools like this give you a quick and easy way to improve your success with little effort on your part.
Avoiding Cash Flow Problems
It’s important to spend some time thinking about your cash flow.
If you don’t have very many overheads, you may be able to dedicate a larger percentage of money to your marketing budget.
However, this isn’t the case for some businesses. A lot of companies have substantial admin or manufacturing costs meaning they don’t have a lot of cash available.
It’s really important to think about situations that could arise in the future and ensure you have plans in place to tackle any problems.
Does the way you work mean that it can take a long time for clients to pay you? Does this mean you’re subsidising costs out of your own pocket?
Furthermore, do you need a pot of money in case of an emergency? Say you run a coffee shop and your coffee machine breaks, how would this affect your cash flow?
These are all factors you need to consider as a business owner when deciding how much to allocate to each budget. After all, you don’t want to get saddled with debt because of poor budgeting.
Every business works differently. Therefore, they experience increased trade at different times of the year.
As a result, it doesn’t make sense to evenly distribute your budget across the months of the year; your budget should fluctuate depending on how busy you are.
If you have periods that are more popular than others or work seasonally, adjust your spend accordingly.
Consider The Professionals
If you feel like you’re missing out on sales, particularly in the slower months, you should look at spending some of your budget on professional services.
We can help you create and manage PPC campaigns that will drive search traffic to your website.
Plus, if your website isn’t converting customers, we can create a site designed specifically for your business. This includes sales copy and a sleek design all of which are expertly made with your customers in mind.
Services like ours can really boost your business and help you to adopt best practices.
Remember: Every Budget Is Different
It’s important to remain flexible.
As your budget and customer’s needs change, you should too. The plans you put in place at the beginning shouldn’t be set in stone, but rather adjust to the current market.
By keeping a permanent eye on the current trends and newest changes, you can ensure your budget is working as hard as it should be.
So, whether you’re determining your first marketing budget or redrafting one for the 5th time, take on board these points and remember to revisit your decisions often.
The most important thing about your marketing budget is how well it helps to measure and manage the cost of attracting new customers and re-engaging existing ones. As it directly impacts the number of sales your company gets, it’s really worth getting right.
The best place to start is to just look at the initial goals you set. How close to meeting them are you?
Remember: your marketing budget is only accurate if it’s taking you in the direction you want to go.